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What does the Budget mean for universal credit (and how much will families benefit - or not)?

By Josephine TuckerHead of Policy and Research30 October 2018

In yesterday’s Budget the Chancellor waited till the last minute to announce new money being put into universal credit (UC). That’s a sign of the political importance this issue now has, and tells us that years of campaigning are starting to cut through. Thanks are due to all our supporters, activists and friends who have helped us get to this point. But as everybody working in the field of poverty or social security chorused yesterday, there’s a very long way still to go if UC is to be made fit for purpose, and certainly before austerity can be considered ‘over’ for the UK’s low-income families.

The biggest UC news in the Budget was the decision, under the weight of enormous political pressure, to increase work allowances for families with children and disabled people with limited capability for work by £1000 a year from April 2019. That will mean up to £630 a year (just over £50 a month) in the pockets of these families, because an extra £1000 of their earnings will not be subject to a clawback of 63%. For renting parents with children, this more than restores the work allowances to their pre-cuts level, though families not claiming housing costs will still face a shortfall by comparison. This is a big win - previous analysis showed that renting single parents on the minimum wage would otherwise have had to work almost two extra months each year just to make up for the work allowance cuts, making them a hugely unfair move.

However, when you remember that £37bn is now being cut from social security each year, and that around £3bn was taken in the work allowance cuts alone, the decision to put £1.7bn a year back into UC does not look particularly generous – especially as more than this is being spent to raise the income tax personal allowance and higher rate threshold, overwhelmingly benefitting better-off households. The benefits freeze will continue for a fourth year – the biggest single cut to families’ incomes – and there was no relief for families affected by the two-child limit or the benefit cap, or for the disabled children and young parents who will be made systematically worse off in the move to UC. All of these cuts are ‘hard-wired’ into UC.

Our previous research found that restoring work allowances to their previous level would keep around 200,000 children from poverty; the Chancellor’s announcement does a bit more than this for some families, but less for others, and the net effect is not yet clear. If it is around 200,000 that is of course good news, but still a fairly small proportion of the million expected to be pushed into poverty by UC cuts overall, compared with the scheme’s original promise.

Various other changes to UC are also included in Budget documents, many relating to the transition. These are welcome but in most cases limited in their impact, and many will not take effect for months or even years:

•The maximum rate of debt deductions will be reduced from the current 40% to 30% of the standard allowance (the money meant for adults’ living costs). This is a positive step but will not prevent deductions from causing hardship, and does not come into force for nearly a year (October 2019).

•Advances will be recoverable over 16 months rather than 12. This is also aimed at reducing the hardship caused by debt recovery, but is again limited in impact and won’t come into effect until October 2020. If the government is serious about preventing hardship it would do best to stop tinkering with repayments and convert advances from repayable loans into grants. This would be a more proportionate response to the hardship being imposed upon millions of families when they transfer to UC through no choice of their own.

•From July 2020, people moving on to UC will receive two weeks of income support, employment and support allowance or income support during the five-week wait for UC to be paid. This is something which CPAG has argued for, but it is very disappointing that it won’t be available for nearly two years and that help for children (through tax credits) isn’t included.

•The Minimum Income Floor will now apply to all gainfully self-employed UC claimants after a 12-month grace period, not just those in the first year of their business. This will help a lot of self-employed claimants during the first year of their claim (after that the MIF will be as burdensome as ever) but again does not come into effect till July 2019 for managed migration or September 2020 – almost two years from now – for people moving across through a change of circumstances.

•The point at which the surplus earnings rules become harsher has been pushed back by another year to April 2020. These rules mean that if you earn enough to escape UC, extra earnings during the period when you’re not on UC will come back to haunt you by reducing your subsequent UC. Currently only earnings over £2,500 above the threshold at which you would receive UC are taken into account, but from April 2020 this will fall to £300 bringing many more people under the scope of these rules. This delay could mean the government has recognised how problematic these rules are - penalising people who increase their earnings and make calculating UC payments even more fiendishly complicated than it already is.

•From January 2019, claimants receiving the Severe Disability Premium will not be able to move on to UC except through managed migration (when they will receive transitional protection).

•People who move from tax credits to UC through managed migration, who have capital over £16,000, will be exempt from the capital limit in UC for a year after they migrate. At this point presumably their entitlement to UC will simply end.

•From November 2018, the exceptions to the two-child limit for children who are adopted or in kinship care will apply regardless of the order of children in the family. This follows the ruling on CPAG’s successful legal challenge issued in April, meaning changes will finally come into force seven months after this victory.

•18-21 year olds will automatically be eligible for housing support in UC from December 2018 (reversing the previously announced cut to support for this group).

These injections of cash into UC do not change the fact that, on average, people will be entitled to less money under UC than on the system it is replacing. As long as this remains true – and as long as so many design features of UC remain unresolved – we cannot support the continuation of the roll out.